If there is deflation of 1% and a firm wants to leave real wages unchanged, it will need to:
A)raise nominal wages by 1%.
B)lower nominal wages by 1%.
C)lower real wages by 2%.
D)leave nominal wages unchanged.

Question

Quizplus · Accepted Answer

Deflation means the general price level is falling, so if a firm wants to maintain the same real wage for its employees, it needs to lower nominal wages by the same percentage to match the deflation rate. Therefore, the correct answer is B, lower nominal wages by 1%.

If There Is Deflation of 1% and a Firm Wants